Sometimes, credit crunching in capital markets may involve a reduction in availability of bank mortgage loans. Some companies may lack options for short-term financing sources and an effective approach to managing investments to support regular business operations. For some entrepreneurs and managers of small and medium sized enterprises, cash flow and risk management are increasingly important.
Generally, businesses need to maintain a certain level of cash reserve as working capital. In some cases, if the working capital reserve level is too high, it may not be cost efficient. On the other hand, businesses may be at risk and may fail to operate consistently if the working capital reserve level is too low. As such, there exists a need to manage the allocation of resources and risk while maintaining cash reserves levels in an efficient manner so as to maximize profits.